Adex Media (ADXM) 10-Q 2009 Q1 Quarterly report

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 March 31, 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: 333-143695

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  x    No  ¨

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 May 10, 2009, 31,632,386 shares of Common Stock, par value $0.0001, of the registrant were outstanding.

ADEX MEDIA, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2009

TABLE OF CONTENTS

			Page
Part I.     Financial Information
Item 1.	Financial Statements
	(a)	Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008 (unaudited)	3
	(b)	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009    and 2008 (unaudited)	4
	(c)	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (unaudited)	5
	(d)	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		31
Item 4T.	Controls and Procedures		31
Part II.     Other Information
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3.	Defaults Upon Senior Securities		47
Item 4.	Submission of Matters to a Vote of Security Holders		47
Item 5.	Other Information		47
Item 6.	Exhibits		48
	Signatures		49

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

ADEX MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	807,744		$	683,576
Short-term investments		1,215,817			2,502,670
Accounts receivable, net of allowance for doubtful accounts of $33,981		767,019			521,004
and $19,737
Credit card holdbacks, net of allowance of $225,672 and $167,363		414,529			300,493
Inventory		112,939			57,087
Prepaid expenses and other current assets		208,559			97,878
Total current assets		3,526,607			4,162,708
Property and equipment, net		44,965			43,606
Intangible assets, net		1,285,281			1,367,330
Goodwill		8,448,789			8,448,789
Total assets	$	13,305,642		$	14,022,433
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,694,885		$	929,807
Accrued liabilities		884,956			593,907
Deferred revenue		66,815			25,709
Promissory notes		301,993			401,806
Total current liabilities		2,948,649			1,951,229
Promissory notes		-			150,000
Deferred tax liability		386,331			404,817
Total liabilities		3,334,980			2,506,046
Commitments and Contingencies (Note 16)
Stockholders' Equity:
Common stock, $0.0001 par value; 150,000,000 shares authorized, 31,632,386		3,163			3,120
and 31,202,347 shares issued and outstanding at March 31, 2009 and
December 31, 2008, respectively
Additional paid-in capital		13,987,279			13,808,966
Accumulated deficit		(4,019,780	)		(2,295,699	)
Total stockholders' equity		9,970,662			11,516,387
Total liabilities and stockholders' equity	$	13,305,642		$	14,022,433

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

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ADEX MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For The Three Months Ended
	March 31,			March 31,
	2009			2008
Revenues:
Marketing platform services	$	2,512,500		$	690,553
Products		981,396			-
Total revenues		3,493,896			690,553
Cost of revenues:
Marketing platform services		2,103,893			543,660
Products		376,626			-
Amortization of acquired product licenses		35,000			-
Total cost of revenues		2,515,519			543,660
Gross profit		978,377			146,893
Operating expenses:
Sales and marketing		2,150,513			32,490
General and administrative		538,390			8,496
Amortization of intangible assets		47,049			-
Total operating expenses		2,735,952			40,986
Operating (loss) income		(1,757,575	)		105,907
Interest and other income, net		15,008			2,558
(Loss) income before provision for income taxes		(1,742,567	)		108,465
(Benefit) provision for income tax		(18,486	)		800
Net (loss) income	$	(1,724,081	)	$	107,665
(Loss) earning per common share, basic and diluted	$	(0.05	)	$	0.43
Weighted average common shares used in computing
basic and diluted (loss) income per share		31,431,923			250,000

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

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ADEX MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Three Months Ended
	March 31,			March 31,
	2009			2008
Cash flows from operating activities:
Net (loss) income	$	(1,724,081	)	$	107,665
Reconciliation of net (loss) income to net cash (used in) provided by operating activities:
Depreciation		11,167			346
Amortization of intangibles		82,049			-
Share-based compensation		178,356			-
Interest from accretion of promissory notes		(4,813	)		-
Deferred income tax adjustment		(18,486	)		-
Inventory provision for obsolescence		25,141			-
Bad debt recovery		(1,446	)		-
Allowance for charge backs		58,309			-
Changes in current assets and liabilities:
Accounts receivable		(244,569	)		(22,464	)
Inventory		(80,993	)		-
Prepaid expenses and other current assets		(110,681	)		-
Credit card holdbacks		(172,345	)		-
Accounts payable		765,078			32,756
Accrued liabilities		291,049			(32,107	)
Deferred revenue		41,106			-
Net Cash (used in) provided by operating activities		(905,159	)		86,196
Cash flows from investing activities:
Purchase of short-term investments		(1,464,777	)		-
Proceeds from sale of short-term investments		2,751,630			17,797
Purchase of property, plant and equipment		(12,526	)		-
Net cash provided by investing activities		1,274,327			17,797
Cash flows from financing activities:
Repayment of promissory notes		(245,000	)		-
Net cash used in financing activities		(245,000	)		-
Net increase in cash and cash equivalents		124,168			103,993
Cash and cash equivalents at beginning of period		683,576			5,379
Cash and cash equivalents at end of period	$	807,744		$	109,372

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

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ADEX MEDIA, INC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 and lead generation publisher with a focus on offering advertising customers a multi-channel Internet advertising network and broader solutions for direct advertisers and agencies. Adex’s marketing platform provides a range of services including (i) search marketing; (ii) display marketing; (iii) lead generation; and (iv) affiliate marketing. In addition, through its acquisition of the membership interests of Digital Instructor, LLC on August 12, 2008, Adex is a licensor and marketer of consumer products.  Adex’s Digital Instructor subsidiary currently sells and markets seven products: (i) Overnight Genius – a comprehensive computer learning course in mastering MS Windows, MS Office, eBay, and others; (ii) Rising Star Learning – a math and language arts educational product for children; (iii) Debt Snap – an audio seminar designed to help consumers manage their debt and restore credit standing; (iv) Lucky At Love – a relationship strategy product; (v) EasyWhite Labs – a teeth whitening kit; (vi) Acai Alive – a dietary supplement; and (vii) RezActiv – a dietary supplement.

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 March 31, 2008 included the results of operations for Pieces as a standalone entity. The results of operations presented for the period ended March 31, 2009 included the three months results of Adex and Abundantad. 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 and No. 2 on Form 10-K/A, each as filed with the Securities and Exchange Commission (“SEC”) on April 2, 2009 and April 30, 2009, respectively. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for any future period.

Certain amounts in prior year financial statements have been reclassified to conform to the current year presentation.

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Note 2.      Significant Accounting Policies

Revenue Recognition

The Company’s revenues consist of (i) marketing platform service revenue generated from on-line marketing, advertising, and lead generation; and (ii) revenue generated from selling and marketing consumer products. The Company evaluates revenue recognition using the following basic criteria and recognizes 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.

(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 consists mostly of revenue derived world-wide from direct advertisers, affiliate networks, ad networks, list managers, financial advisors, and other financial services companies. The Company’s consumer product revenue consists mostly of revenue derived from on-line consumers in the United States and Canada.

The Company’s marketing platform service revenue 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, list managers, and financial advisors pay the Company when a specified action (a purchase, a form submission, or other action linked to the advertisement) has been completed.

The Company ships its consumer products on a free trial subscription basis. Title to all products 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 10 to 11  days in 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 that relate to leads delivered for our product segment are recorded as sales and marketing expenses. Payments made or accrued to our sales and marketing affiliates that relate to leads delivered for third-party offers that we broker are recorded as cost of revenue.

Note 3. Fair Value Measurement

Effective January 1, 2008, we adopted the Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“FAS 157”), which defines fair value, establishes a framework and provides guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. The adoption of FAS 157 for financial assets and financial liabilities had no material impact on our financial position, results of operations and liquidity.  FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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The fair-value hierarchy established in 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.

The Company used Level 1 inputs in measuring the fair market value of its short-term investments at March 31, 2009.

Relative to FAS 157, the FASB issued Staff Position No. FAS 157-1 and FAS 157-2 in February 2008 and FAS 157-3 in October 2008.

FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, did not impact us as it amends FAS 157 to exclude Statement of Financial Accounting Standards No. 13, Accounting for Leases, and its related interpretative accounting pronouncements that address leasing transactions.

FAS 157-2, Effective Date of FASB Statement No. 157, delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008. We adopted the FAS 157-2 as of January 1, 2009. The adoption had no material impact on the Company’s’ financial position, results of operations and liquidity.

FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, clarifies the application of FAS 157 as it relates to the valuation of financial assets in a market that is not active and is effective immediately. As of March 31, 2009, we did not have any financial assets that were valued using inactive markets, and as such, we were not impacted by FAS 157-3.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”). FAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. FAS 159 was effective for financial statements issued for fiscal years beginning after November 15, 2007, although earlier adoption was permitted. FAS 159 is effective for years beginning after November 15, 2007. We adopted FAS 159 and have elected not to measure additional financial instruments and other items at fair value. As such, the adoption had no material impact on the Company’s financial position, results of operations and liquidity.

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 4.  Credit Card Holdbacks

Credit card holdbacks are reserves maintained by the credit card processors for any potential charge-backs related to the Company’s on-line sales of consumer products.  As of March 31, 2009 and December 31, 2008, the balance of credit card holdbacks was $414,529 and $300,493, respectively.  The Company maintains a separate accrual for credit card charge-backs and customer return refunds which are both netted against the balance in credit card holdbacks.  The balance of this accrual at March 31, 2009 and December 31, 2008 was $202,349 and $144,040, respectively. The Company also maintains an allowance for uncollectible credit card holdbacks.  The balance of accrual for both March 31, 2009 and December 31, 2008 was $23,323.

Note 5.  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 March 31, 2009 and December 31, 2008, the balance in the provision for obsolete slow moving and non-saleable inventory was $49,496 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.

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Note 6.  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 inventory and the Company’s operating leases. At March 31, 2009 and December 31, 2008, the balance was $208,559 and $97,878, respectively.

Note 7. Property and Equipment, net

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

	March 31,			December 31,
	2009			2008
Computers and other office equipment	$	84,834		$	75,721
Office furniture		47,957			44,544
Software licenses		2,530			2,530
Total property and equipment, net		135,321			122,795
Accumulated depreciation		(90,356	)		(79,189	)
Property and equipment, net	$	44,965		$	43,606

The Company depreciates its property and equipment using the straight line method over useful lives ranging from two to five years.  For the three months ended March 31, 2009, we recorded $11,167 in depreciation expenses and none for the three months ended March 31, 2008.

Note 8.  Goodwill and Intangible Assets

The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets (“FAS 142”). Under FAS 142, goodwill is to be reviewed at least annually for impairment. The Company has elected to perform this review annually on December 31 of each calendar year. As of March 31, 2009, the goodwill balance is $8,448,789, of which $1,945,366 is attributable to the marketing platform services segment and $6,503,423 is attributable to the product segment.

Intangible Assets

The components of acquired intangible assets as of March 31, 2009 and December 31, 2008 are as follows:

	March 31,			December 31,
	2009			2008
Intangible assets acquired	$	1,800,000		$	1,800,000
Accumulated amortization		(204,719	)		(122,670	)
Subtotal		1,595,281			1,677,330
Impairment		(310,000	)		(310,000	)
Intangible assets, net	$	1,285,281		$	1,367,330

For the three months ended March 31, 2009 and 2008, $82,049 and $0, respectively, of intangible asset amortization was recorded and included in amortization of intangible assets in the condensed consolidated statement of operations, of which, $35,000 and $0, respectively, of intangible asset amortization was recorded and included in cost of revenues in the condensed consolidated statement of operations.

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

	Amortization Expense
	(by fiscal year)
Remainder of 2009	$	246,142
2010		319,765
2011		290,739
2012		268,977
2013		159,658
Total	$	1,285,281

The total weighted average life of all of the intangibles is approximately 4.74 years.

There were no amounts of in process research and development assets acquired during the three months ended March 31, 2009, nor any written-off in the period.

During the year ended December 31, 2008, the Company determined that certain of the assets acquired in connection with the acquisition of Vibrantads were impaired. Accordingly, the Company recorded a $310,000 impairment charge.  This charge related to the Company’s marketing platform services agreement.

Note 9.  Accrued Liabilities

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

	March 31,		December 31,
	2009		2008
Accrued franchise taxes	$	5,000	$	15,500
Accrued payroll and payroll  related expenses		298,583		259,358
Accrued professional fees		109,501		130,001
Accrued dividends to Pieces Media 1		100,000		100,000
Accrued payment to affiliates		30,685		-
Accrued credit card charge-back fees		50,204		57,280
Accrued payment to Pieces Media 1		263,836		-
Other		27,147		31,768
Total	$	884,956	$	593,907
(1) Payments due to former members of Pieces Media.

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Note 10.    Promissory Notes

Promissory notes as of March 31, 2009 and December 31, 2008 are comprised of the following:

	March 31,		December 31,
	2009		2008
$60,000 promissory note; non-interest bearing, due       July 21, 2009; shown net of imputed interest of       $1,352 and $2,388, respectively	$	58,648	$	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 imputed     interest of $11,655 and $5,806, respectively		243,345		494,194
Total promissory notes	$	301,993	$	551,806
Note: At March 31, 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.

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. The unpaid principal amount of the promissory note shall be due and payable in its entirety on July 21, 2009. The promissory note contains customary events of default that entitle the holder thereof to accelerate the due date of the unpaid principal amount of the promissory note. The present value of the promissory note at March 31, 2009 and December 31, 2008 was $58,648 and $57,612, respectively. The promissory note is being accreted to the value of its principal amount over a period of twelve months.

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:

(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.

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The present value of the promissory note at March 31, 2009 and December 31, 2008 was $243,345 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 months ended March 31, 2009, we recovered $4,813 of imputed interest expense due to the amendment on the payment term of the promissory note. We had no such interest expense in the three months ended March 31, 2008.

Note 11.    Earning (Loss) per Share

We compute basic and diluted net income (loss) per share amounts pursuant to SFAS No. 128, Earnings per Share (“FAS 128”). Basic income (loss) per share is computed using the weighted average number of common shares outstanding during the year.

Diluted income (loss) per share is computed using the weighted average number of common and potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of the incremental common shares that could be issued upon exercise of stock options (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 share for the three months ended March 31, 2009 and March 31, 2008:

	March 31,			March 31,
	2009			2008
Basic weighted average shares outstanding		31,431,923			250,000
Add: effect of dilutive stock options		-			-
Diluted weighted average shares outstanding		31,431,923			250,000
Anti-dilutive stock options not included in the above calculation		4,680,000			-
Anti-dilutive warrants not included in the above calculation		75,000			-
Net (loss) income	$	(1,724,081	)	$	107,665
(Loss) earnings per share, basic and diluted	$	(0.05	)	$	0.43

During the three months ended March 31, 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 months ended March 31, 2008, the Company had no potentially dilutive common shares equivalents assuming dilution, as such, the basic and diluted weighted average shares were the same.

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.

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 from escrow based upon the Bay Harbor assets achieving certain revenue and profit milestones.

Note 12.    Comprehensive (Loss) Income

We report comprehensive (loss) income 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 months ended March 31, 2009 and 2008, the Company’s comprehensive (loss) income was the same as net (loss) income.

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Note 13.    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.

Total rent expense for the three months ended March 31, 2009 and 2008 was $39,887 and $0, respectively.

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	Amount
Remainder of 2009	$	108,518
2010		80,967
2011		83,838
2012		42,603
Total	$	315,926

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 March 31, 2009, we are not party to any pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations

Note 14.  Stock Options, Restricted Stock, Warrants, and Share-Based Compensation Expense

We currently have one equity compensation plan, the Adex Media, Inc. Employee Stock Option Plan (the “Plan”) 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 stock.

Under the Plan, options for 5,000,000 shares of common stock are reserved for issuance.  At March 31, 2009, 320,000 options were available for grant.  

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Stock Options

Option activity under the Plan was as follows for the first quarter of 2009:

			Weighted		Weighted
			Average		Average
			Exercise		Remaining		Aggregate
			Price per		Contractual		Intrinsic
	Outstanding		Share		Life (in Years)		Value
Outstanding at December 31, 2008		4,680,000	$	1.62		9.41	$	5,159,900
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited or expired		-		-		-		-
Outstanding at March 31, 2009		4,680,000	$	1.62		9.16	$	4,984,400
Vested and exercisable at March 31, 2009		45,833	$	0.75		4.13	$	66,458

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 March 31, 2009, the fair value of options issued by the Company was $4,069,726 of which $0 has been forfeited. The unamortized cost of stock options issued remaining at March 31, 2009 was $3,325,398 with a weighted average expected term for recognition of 3.14 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, $1,547 was recognized in the first quarter of 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 March 31, 2009, the fair value of restricted stock issued by the Company was $287,581. The unamortized cost of restricted stock issued remaining at March 31, 2009 was $209,317 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.

We accounted for non-employee shares of restricted stocks in accordance to Emerging Issues Task Force (“EITF”) Abstract 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (“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 March 31, 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 March 31, 2009. During the first quarter of 2009, there was no issuance or cancellation of warrants.We recorded $18,310 in warrants expense during the period.

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

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Life (in Years)		Value
Outstanding at December 31, 2008		75,000	$	2.50	$	5.00	$	6,250
Granted		-						-
Exercised		-						-
Forfeited or expired		-						-
Outstanding at March 31, 2009		75,000	$	2.50		4.76	$	5,000
Exercisable at March 31, 2009		-	$	-		-	$	-

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:

	March 31,			March 31,
	2009			2008
Sales and marketing - stock options to employees	$	81,913		$	-
Sales and marketing - restricted stocks to employees		1,847			-
General and administration - stock options to employees		62,301			-
General and administration - restricted stocks to employees		(10,355	)		-
General and administration - restricted stocks to non-employees		24,340			-
General and administration - warrants to non-employees		18,310
Total share-based compensation expense	$	178,356		$	-

Note 13.   Concentrations

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consists of short-term investments and accounts receivable.  At March 31, 2009, the Company had deposits in excess of the Federal Deposit Insurance Corporation (FDIC) limit at one U.S. based financial institution.  We had uninsured bank balances and certificates of deposit totaling $1,495,923 and $2,626,088, respectively at March 31, 2009 and December 31, 2008.  The Company maintains its bank accounts at three financial institutions.

Customer Base

At March 31, 2009, 31% of our revenue was generated from two customers with each accounting for 17% and 14%, respectively; and 49% of our revenue was generated from our top five customers during the three months ended March 31, 2009. One of the aforementioned customers accounted for 27% and the other accounted for 16%, respectively, of our March 31, 2009 accounts receivable. The two customers together accounted for an aggregate of 43% of our total accounts receivables.

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As of December 31, 2008, three customers accounted for an aggregate of 35% of consolidated accounts receivable.

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

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 March 31, 2009 and December 31, 2008, based on historic trends and the Company’s expectation of collectability.  Allowance for doubtful accounts at March 31, 2009 and December 31, 2008 was $33,981 and $19,737, respectively.

Vendor Base

During the three months ended March 31, 2009, one vendor accounted for more than 10% of our total expenditures. During the three months ended March 31, 2008, none of the vendors accounted for more than 10% of our total expenditures.

Major vendors are defined as those vendors having expenditures made by the Company which exceed 10% of the Company’s 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 March 31, 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 15.    Segment Reporting

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 on August 12, 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 is the products segment.

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. Unallocated 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.

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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:

	Marketing
	Platform
For the Three Months Ended	Services			Products			Total
March 31, 2009
Revenues	$	2,512,500		$	981,396		$	3,493,896
Cost of revenues		2,103,893			411,626			2,515,519
Gross profit	$	408,607		$	569,770		$	978,377
Gross margin		16	%		58	%		28	%
Unallocated operating expenses							$	2,735,952
Operating loss							$	(1,757,575	)
March 31, 2008
Revenues	$	690,553		$	-		$	690,553
Cost of revenues		543,660			-			543,660
Gross profit	$	146,893		$	-		$	146,893
Gross margin		21	%		-			21	%
Unallocated operating expenses							$	40,985
Operating income							$	105,908

For the three months ended March 31, 2009, there was $902,851 in intersegment revenue recognized by the marketing platform services segment from the products segment. This amount has been eliminated in the condensed consolidated financial statements. There was no such intersegment revenue elimination in the three months ended March 31, 2008.

Note 16.    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 purchase price for the Vibrantads assets consisted of the following: (i) $70,000 at closing; (ii) 112,500 unregistered restricted shares of Adex common stock at closing; and (iii) a promissory note in favor of the sole selling member of Vibrantads, in the principal amount of $60,000 with no interest thereon, and having a maturity date that is twelve months from July 21, 2008, the closing date. The purchase price for the Vibrantads assets was determined based on arm’s length negotiations. Prior to the acquisition, there were no material relationships between Adex and Vibrantads or with any of company’s affiliates, directors, officers, or any associate of such directors or officers.

The principal amount of the promissory note bears no interest. The unpaid principal amount of the promissory note is due and payable in its entirety on July 21, 2009. The promissory note contains customary events of default that entitle the holder thereof to accelerate the due date of the unpaid principal amount of the promissory note. The present value of the promissory note at March 31, 2009 and December 31, 2008 was $58,648 and $57,612, respectively. The promissory note is being accreted to the value of its principal amount over a period of twelve months.

As part of the transaction, the Company entered into a lockup and share release agreement which restricts the sole selling member from selling the shares until certain prescribed intervals. The lockup begins to lapse twelve months after the closing date with all restrictions under the lockup lapsing eighteen months after the closing date.

The shares are subject to a reset provision that would occur twelve months after the closing date and would cover the 112,500 shares pursuant to a formula that compares the volume-weighted average price (the “VWAP”) of Adex common stock for the ten days preceding the reset to a contractually guaranteed minimum price per share.  In the event the VWAP was less than $2.50 per share, the Company would issue an additional number of shares of common stock as necessary to provide the seller with the benefit of the guaranteed minimum price. The reset is subject to a maximum floor value for the VWAP of $0.75 per share.

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

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

The fair value of the 112,500 unregistered common shares issued was determined to be $531,563 on July 21, 2008.

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

	Amounts
Intangible assets	$	310,000
Goodwill		396,805
Total assets acquired	$	706,805

The acquisition of the Vibrantads’ assets was accounted for as a business combination and the operations of Vibrantads were included in the Company’s results of operations beginning on July 21, 2008, the acquisition date. The factors resulting in goodwill were Vibrantads’ name, reputation, and established key personnel. The full amount of goodwill is deductible for tax purposes over a period of 15 years.

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.

For the three months ended March 31, 2008, there was no revenue and earnings (loss) related to the foregoing assets purchased. As such, the proforma results for the three months ended March 31, 2008 is same as the actual results reported on this condensed consolidated statement of operations.

	March 31,			March 31,
	2009			2008
Revenues	$	3,493,896		$	690,553
Net (loss) income	$	(1,724,081	)	$	107,665
(Loss) income per share, basic and diluted	$	(0.05	)	$	0.30

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.

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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.

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.

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

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

The fair value of the 1,200,000 unregistered common stock issued was determined to be $5,616,000 on August 12, 2008.

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

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

For the three months ended March 31, 2009, $981,396 in revenue and $118,855 in net loss was included in the Company’s condensed consolidated statement of operations.

The accompanying consolidated pro forma information gives effect to the Digital Instructor acquisition as if it had occurred on January 1, 2008 and its results of operations were included in the three months ended March 31, 2009 and 2008. The pro forma information is included only for purposes of illustration and does not necessarily indicate what the Company’s operating results would have been had the acquisition of the Digital Instructor Membership Interests been completed on January 1, 2008.

	March 31,			March 31,
	2009			2008
Revenues	$	3,493,896		$	1,660,912
Net (loss) income	$	(1,724,081	)	$	166,895
(Loss) income per share, basic and diluted	$	(0.05	)	$	0.09

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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.

The purchase price for the Bay Harbor assets consisted of the following: (i) $50,000 paid to Bay Harbor at the closing; (ii) 50,000 unregistered restricted shares of the Company’s common stock (the “Closing Shares”) issued to Bay Harbor on the closing date subject to a contractual lock-up and share release agreement (the “Lock-Up Agreement”); (iii) 152,151 restricted unregistered shares of the Company’s common stock issued to the managing member of Bay Harbor, on the closing date; (iv) 147,273 restricted unregistered shares of the Company’s common stock issued to a creditor of Bay Harbor, on the closing date; and (v) an additional amount of up to 150,000 restricted unregistered shares of the Company’s common stock (the “Earn Out Shares”) issued to an escrow agent on the closing date in the name of Bay Harbor pursuant to an escrow agreement (the “Escrow Agreement”).  The  Earn Out Shares are subject to the Lock-Up Agreement and all or part of the Earn Out Shares are subject to release from escrow within a certain period of time following August 29, 2009, in accordance with an earn-out formula setting forth certain net revenue and net profit margin performance targets for the Bay Harbor assets. The aggregate purchase price was $1,878,562 which included the following:

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

The aggregate fair value of the aforementioned unregistered common stock issued was determined to be $1,676,187 on August 29, 2008.

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:

	Amounts
Intangible assets	$	330,000
Goodwill		1,548,562
Total 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.

The accompanying consolidated pro forma information gives effect to the Bay Harbor acquisition as if it had occurred on January 1, 2008 and its results of operations were included in the three months ended March 31, 2009 and 2008. The pro forma information is included only for purposes of illustration and does not necessarily indicate what the Company’s operating results would have been had the acquisition of the Bay Harbor assets been completed on January 1, 2008.

-21-

	March 31,			March 31,
	2009			2008
Revenues	$	3,493,896		$	758,386
Net (loss) income	$	(1,724,081	)	$	745
(Loss) income per share, basic and diluted	$	(0.05	)	$	-

Consolidated Pro Forma

The accompanying consolidated pro forma information gives effect to the acquisitions of Vibrantads, Digital Instructor, and Bay Harbor as if all three had occurred on January 1, 2008 and its results of operations were included in the three months ended March 31, 2009 and 2008. The pro forma information is included only for purposes of illustration and does not necessarily indicate what the Company’s operating results would have been had the foregoing three acquisitions been completed on January 1, 2008.

	March 31,			March 31,
	2009			2008
Revenues	$	3,493,896		$	1,728,745
Net (loss) income	$	(1,724,081	)	$	59,975
(Loss) income per share, basic and diluted	$	(0.05	)	$	0.03

Note 17.    Income Taxes

During the three months ended March 31, 2009 and 2008, we recorded an income tax benefit of $18,486 and an income tax expense of $800, respectively. The 2009 benefit primarily relates to deferred tax liability adjustment related to the intangible asset amortization of the underlying Digital Instructor assets we acquired during 2008.

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 income tax expense. We had no accrued interest or penalties associated with unrecognized tax benefits at March 31, 2009 or December 31, 2008.

Note 18.   Recent Accounting Pronouncements

In April 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FSP 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“FAS 141R”), and other guidance under GAAP. FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets acquired after the effective date. We adopted FSP 142-3 on January 1, 2009 and its effects on future periods will depend on the nature and significance of any acquisitions of intangible under FAS 142.

In December 2007, the FASB issued FAS 141R, which replaces FAS 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized under purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. FAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. We adopted FAS 141R on January 1, 2009 and its effects on future periods will depend on the nature and significance of any acquisitions subject to FAS 141R.

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In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“FAS 160”).  FAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary (formerly known as minority interest) and for the deconsolidation of a subsidiary and requires the noncontrolling interest to be reported as a component of equity.  In addition, changes in a parent’s ownership interest while the parent retains its controlling interest will be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary will be initially measured at fair value. As we don’t have noncontrolling interest in a subsidiary, the adoption of the statement by the Company on January 1, 2009, had no impact on our financial conditions, results of operations and liquidity.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. FAS 162 is effective 60 days following SEC approval of the Public Company Accounting Oversight Board auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We have evaluated the new statement and have determined that its adoption did not have a significant impact on our financial conditions, results of operations and liquidity.

In April 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FAS 157-4”), which provides additional guidance for estimating fair value in accordance with FAS 157. This FSP states that a significant decrease in the volume and level of activity for the asset or liability when compared with normal market activity is an indication that transactions or quoted prices may not be determinative of fair value because there may be increased instances of transactions that are not orderly in such market conditions. Accordingly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. FAS 157-4 is effective after June 15, 2009, and shall be applied prospectively. We do not expect the impact of the adoption of this statement to have a significant impact on our financial conditions, results of operations and liquidity.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which requires disclosures about the fair value of our financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the balance sheets, in the interim reporting periods as well as in the annual reporting periods. In addition, the FSP requires disclosures of the methods and significant assumptions used to estimate the fair value of those financial instruments. This FSP is effective after June 15, 2009, and shall be applied prospectively. We do not expect the impact of the adoption of this statement to have a significant impact on our financial conditions, results of operations and liquidity.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities and requires additional disclosures related to debt and equity securities. This FSP does not change existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective after June 15, 2009, and shall be applied prospectively. We do not expect the impact of the adoption of this statement to have a significant impact on our financial conditions, results of operations and liquidity.

Note 19. Subsequent Event

On May 14, 2008 (the “Closing Date”), Abundantad entered into an Asset Purchase Agreement (the “Agreement”) with Kim and Lim, LLC, d/ba/ Pieces Media (“Pieces”), James Kim (“Kim”) and Dennis Hom (“Hom”), pursuant to which Abundantad purchased substantially all assets of the Pieces (“Abundantad Assets”). Pursuant to the Agreement, Abundantad was to make the following cash payments as part of the Purchase Price: $550,000, payable $250,000 on the Closing Date and $300,000 on the first anniversary of the Closing Date.  In addition, a revenue target-based bonus (the “Bonus”) in the amount of $100,000 was to be paid in cash to Pieces by Abundantad upon achieving a minimum of $3,000,000 in annual audited revenues generated by the Abundantad Assets in calendar year 2008, in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).  If earned, the Bonus was to be paid by Abundantad no later than March 31, 2009.

On May 13, 2009, Abundantad, Pieces, Kim, and Hom entered into an amendment to the Asset Purchase Agreement (the “Amendment”). The Amendment extended the payment deadline for the second payment of $300,000 due to Pieces, making said payment due and payable as followings: (i) $100,000 payable on May 14, 2009; (ii) $100,000 payable on June 14, 2009; and (iii) $100,000 payable on July 14, 2009. The Amendment also extended the due date of the $100,000 Bonus to August 14, 2009. The Amendment further provides that the foregoing payments shall be accelerated and due within three days of the Company’s receipt of funds in connection with a closing of a financing transaction in the net minimum amount of $3 million. Except for the above-referenced modifications, the terms and provisions of the Agreement remain in full force and effect.

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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 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/  and No. 2 on Form 10K/A, each as filed with the Securities and Exchange Commission (“SEC”) on April 2, 2009 and April 30, 2009, respectively. Our results of operations for the three months ended March 31, 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 and lead generation publisher with a focus on offering advertising customers a multi-channel Internet advertising network and broader solutions for direct advertisers and agencies. Adex’s marketing platform provides a range of services including (i) search marketing; (ii) display marketing; (iii) lead generation; and (iv) affiliate marketing. In addition, through its acquisition of the membership interests of Digital Instructor, LLC on August 12, 2008, Adex is a licensor and marketer of consumer products.  Adex’s Digital Instructor subsidiary currently sells and markets seven products: (i) Overnight Genius – a comprehensive computer learning course in mastering MS Windows, MS Office, eBay, and others; (ii) Rising Star Learning – a math and language arts educational product for children; (iii) Debt Snap – an audio seminar designed to help consumers manage their debt and restore credit standing; (iv) Lucky At Love – a relationship strategy product; (v) EasyWhite Labs – a teeth whitening kit; (vi) Acai Alive – a dietary supplement; and (vii) RezActiv – a dietary supplement.

We do not manufacture any of our current suites of consumer products. Our products are either licensed directly from third parties or purchased on a private label basis from wholesalers or contracted manufacturers and rebranded. Most of our products are purchased as finished goods components and assembled at our Boulder, Colorado facility. The formulation, labeling, manufacture, marketing, promotion and distribution of our EasyWhite Labs and Acai Alive products are subject to federal laws and regulation by one or more federal agencies, including the Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”).  These activities are also regulated by various state, local, and international laws and agencies in places where these products are sold.

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Business Segments

We currently maintain two business segments:

(i)   Marketing platform services; and

(ii)   Consumer products

We intend to grow in the areas of online customer acquisition, diversified multi channel advertising, tracking, reporting, and conversion enhancing technologies.

We plan to expand our customer base of leading third-party direct advertisers, ad networks, affiliate networks, list managers, financial advisors, and end consumers, as well as our own wholly-owned properties by continuing to expand our advertising reach and utilizing cutting edge conversion and tracking technologies to improve performance.  We intend to service domestic advertisers and continue to expand into international markets.

We plan to continue expanding into new advertising channels, both domestically and internationally, which include, but are not limited to display (banners), search, email, mobile, and user applications. By continuing to diversify our reach, we can offer our advertisers a broader platform by which to acquire new customers.  Our advertisers will be able to leverage a vast and multi-channel advertising network, as well as leverage new channels as they become available. We plan to continue to invest in our proprietary conversion, tracking, and reporting technologies.

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 in Item 7, “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 and No.2 on Form 10-K/A, each as filed with the SEC on April 2, 2009 and April 30, 2009, respectively. 

Significant Accounting Policies

Revenue Recognition

The Company's revenues consist of (i) marketing platform service revenue generated from on-line marketing, advertising, and lead generation; and (ii) revenue generated from selling and marketing consumer products. The Company evaluates revenue recognition using the following basic criteria and recognizes 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.

(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).

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The Company’s marketing platform service revenue consists mostly of revenue derived world-wide from direct advertisers, affiliate networks, ad networks, list managers, financial advisors, and other financial services companies. The Company’s consumer product revenue consists mostly of revenue derived from on-line consumers in the United States and Canada.

The Company’s marketing platform service revenue 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, list managers, and financial advisors pay the Company when a specified action (a purchase, a form submission, or other action linked to the advertisement) has been completed.

The Company ships its consumer products on a free trial subscription basis. Title to all products 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 10 to 11 days in 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 that relate to leads delivered for our product segment are recorded as sales and marketing expenses. Payments made or accrued to our sales and marketing affiliates that relate to leads delivered for third party offers that we broker are recorded as cost of revenue.

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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 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.

	Three Months Ended*					March 31, 2009 vs. 2008*						% of Revenue*
	March 31,			March 31,		Change			Change			March 31,			March 31,
	2009			2008		in $			in %			2009			2008
Revenues:
Marketing platform services	$	2,512,500		$	690,553	$	1,821,947			263.8			72			100
Products		981,396			-		981,396			n/a			28			-
Total revenues:		3,493,896			690,553		2,803,343			406.0			100			100
Cost of revenues:
Marketing platform services		2,103,893			543,660		1,560,233			287.0			60			79
Products		376,626			-		376,626			n/a			11			-
Amortization of acquired product licenses		35,000			-		35,000			n/a			1			-
Total cost of revenues:		2,515,519			543,660		1,971,859			362.7			72			79
Gross profit		978,377			146,893		831,484			566.0			28			21
Operating expenses:
Sales and marketing		2,150,513			32,490		2,118,023			6,519.0			62			5
General and administrative		538,390			8,496		529,894			6,237.0			15			1
Amortization of intangible assets		47,049			-		47,049			n/a			1			-
Total operating expenses		2,735,952			40,986		2,694,966			6,575.3			78			6
Operating (loss) income		(1,757,575	)		105,907		(1,863,482	)		(1,759.5	)		(50	)		16
Interest and other income, net		15,008			2,558		12,450			486.7			-			-
(Loss) income  before provision for income taxes		(1,742,567	)		108,465		(1,851,032	)		(1,706.6	)		(50	)		16
(Benefit) provision for income tax		(18,486	)		800		(19,286	)		(2,410.8	)		(1	)		-
Net (loss) income	$	(1,724,081	)	$	107,665	$	(1,831,746	)		(1,701.3	)		(49	)		16
* Numbers might not foot due to rounding.

Revenues

Revenues increased 406.0% from $690,553 in the first quarter of 2008 to $3,493,896 in the first quarter of 2009. The increase was  the result of (1) an increase of 263.8% in our marketing platform services segment revenue from increasing our customer base and number of advertising offers, expanding into display-based marketing, lead generation (from our acquisition of Bay Harbor Marketing, LLC), and adding affiliates to our distribution network which expanded our publishing reach, and; (2) $981,396 in revenue generated from our product segment resulting from our acquisition of Digital Instructor, LLC on August 12, 2008.

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.

The Company ships its consumer products on a free trial subscription basis. Title to all products 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 10 to 11 days in 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.

We expect revenues to increase in the remaining quarters of fiscal year 2009 primarily attributable to our products segment.

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Cost of Revenues

Marketing platform services cost of sales in the first quarter of 2009 increased 287.0% compared to the same quarter of the previous year. The increase primarily reflected the increased costs of media buys necessary to generate the increased revenue described above.

Marketing platform services cost of revenues for the first quarters of 2009 and 2008 consisted of the following:

	March 31,		March 31,
	2009		2008
Costs of media buys	$	1,566,822	$	543,660
Costs paid to affiliates		513,184		-
Costs of affiliate network software		5,530		-
Costs of web site development and hosting		7,582		-
Merchant service fees		4,019		-
Supplies		3,543		-
Shipping and handling		3,213		-
Total	$	2,103,893	$	543,660

Our products costs of revenues consist of the costs of consumer products from our Digital Instructor subsidiary that we acquired on August 12, 2008. Products cost of revenues for the first quarters of 2009 and 2008 consisted of the following:

	March 31,		March 31,
	2009		2008
Cost of inventory sold, manufacturing and distribution costs	$	55,613	$	-
Inventory write-downs		25,925		-
Merchant service fees		163,874		-
Shipping and handling fees		104,839		-
License fees		43,333		-
Salaries and benefits		18,042		-
Total	$	411,626	$	-

During the first quarter of 2009, we incurred $35,000 in amortization of acquired product licenses that are included in costs of revenues. This amount represents the amortization of acquired product license agreements in connection with our acquisition of Digital Instructor. The value assigned to the acquired product license agreements is $700,000 and is being amortized straight-line over 5 years.

We expect our cost of revenue to increase in the remaining quarters of fiscal year 2009 in relation to the increase in revenue we expect in our products segment.

Gross profit

Marketing platform services gross profit decreased from 21.3% of revenue in the first quarter of 2008 to 16.3% of revenue in 2009.  This decrease in gross profit percentage was the result of increased cost of media buys to support our growth in revenue. Products gross profit was 58.1% in the first quarter of 2009. We did not have revenue from this segment during the first quarter of 2008.

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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. We expect our gross profit to increase in the remaining quarters of 2009 directly related to our expectation that our products segment revenue will increase at a higher rate than our marketing platform services segment.

Operating expenses

Sales and marketing expenses increased $2,118,023 or 6,519.0% in the first quarter of 2009 compared to the same quarter of the previous year. This increase reflects the changes over the last year as we structured for growth through increased headcount staffing. In addition, the increase primarily relates to advertising payments made to affiliates for sales and marketing of our products. We expect sales and marketing expenses to increase in order to support our expected growth in sales of our products.

General and administrative expenses increased by $529,895 or 6,237.7% in the first quarter of 2009 compared to the same quarter of the previous year. As a result of becoming a publicly-traded company, we incurred more personnel costs, stock compensation costs, legal, accounting, auditing, facility costs, and tax planning and compliance fees in the first quarter of 2009 compared to the same quarter of the previous year. We expect general and administrative costs to increase in order to support our expected growth in revenues.

Amortization of intangible assets represents the amortization of purchased intangibles related to our acquisitions of the membership interests of Digital Instructor, LLC, and the assets of Bay Harbor Marketing, LLC.

Our future amortization of intangible asset expense is estimated below:

	Amortization Expense
	(by fiscal year)
Remainder of 2009	$	246,142
2010		319,765
2011		290,739
2012		268,977
2013		159,658
Total	$	1,285,281

Interest and other income (expense), net

Interest and other income (expense) during the first quarter of 2009 increased to $15,008 compared to $2,558 recorded during the same quarter of the previous year.  This increase was primarily the result of the interest we received on our short-term investments from the gross proceeds of $5.8 million in private equity we raised in April and May of 2008, partially offset by interest expense from the accretion of our promissory note.

As a portion of our revenues 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 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 months ended March 31, 2009 and 2008, we recorded an income tax benefit of $18,486 and an income tax expense of $800, respectively. The 2009 benefit primarily relates to deferred tax liability adjustment related to the intangible asset amortization of the underlying Digital Instructor assets we acquired during 2008.

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.

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

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2009, we had unrestricted cash, cash equivalents and short-term investments of approximately $2.0 million compared to $3.2 million as of December 31, 2008. The decrease in cash and short-term investments balances reflect our cash used in operations and the repayment of $245,000 on our promissory note in the first quarter of 2009.

A summary of our cash flow activities for the three months ended March 31, 2009 and 2008 are summarized below:

	March 31,			March 31,
	2009			2008
Cash flows used in  operating activities	$	(905,159	)	$	86,196
Cash flows provided  (used) by investing activities		1,274,327			17,797
Cash flows (used) provided by financing activities		(245,000	)		-
Net increase in cash and cash equivalents		124,168			103,993
Cash and cash equivalents at beginning of period		683,576			5,379
Cash and cash equivalents at end of period	$	807,744		$	109,372

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

·   Depreciation expenses and amortization expenses of $11,167 and $82,049, respectively; and

·   Share-based compensation expenses of $178,356.

Our working capital was approximately $0.6 million at March 31, 2009 compared to $2.2 million at December 31, 2008.

Working capital changes included:

·   an increase of $244,569 in accounts receivable primarily due to increased receivables from our marketing platform services segment;

·   an increase of $110,681 in prepaid assets and other current assets primarily due to increased payments made for prepayment of inventory;

·   an increase of $172,345 in credit card holdbacks reflecting increased merchant processing from our product segment;

·   an increase of $765,078 in accounts payable due to timing of payment to our vendors; and

·   an increase of $291,049 in accrued liabilities primarily due to accrued payment to Pieces Media.

Our primary source of liquidity is cash, cash equivalents and short term investments. 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. We believe that our existing cash and cash equivalents and short-term investments 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.

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.  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 consumer products before we collect the corresponding funds from the end consumer. To the extent we are required to pay our marketing affiliates in advance of when we receive payment, 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 consumer products 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 consumer products exceed the cash paid out to our marketing affiliates. To the extent we realize high volume of end consumers who early cancel the orders within the free trial period of our consumer products, 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 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 Unaudited Condensed Consolidated Financial Statements, Note 18 – Recent Accounting Pronouncements.”

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 March 31, 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 March 31, 2009, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 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 March 31, 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.

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

None.

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 products, in response to tighter credit and negative financial news, which could negatively affect demand for and sales of our products. Weak economic conditions in our target markets, or a reduction in consumer spending even if economic conditions improve, would likely adversely impact our business, 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.  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 first quarter 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 quarter of 2009, we incurred a net loss of $1.7 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.

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Five customers accounted for approximately 62% of our consolidated revenue during 2008 and 49% of our consolidated revenue during the first quarter of 2009; loss of either of these customers would have a material adverse effect on our business.

At March 31, 2009, 31% of our revenue were generated from two customers with each accounted for 17% and 14%, respectively; and 49% of our revenue were generated from our top five customers during the three months ended March 31, 2009. One of the same customer accounted for 27% of our March 31, 2009 accounts receivable and the other accounted for 16% of our accounts receivable. The two customers accounted for an aggregate of 43% of our total 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.

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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.

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 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.

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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.

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 that 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 products 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 products.

The payment by end-users for the purchase of our products 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 products.

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 could be 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.

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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 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.

We experience a high degree 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.  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 volume of transactions it will process. This would result in a severe reduction in revenue and hamper our growth potential. To the extent our chargeback ratios increase, our gross and operating margins will 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.

Our products segment operates in a continuity or negative option model.

Our consumer product offers operate 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 consumer products, 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 consumer product 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 will experience negative gross margins and operating losses in our consumer products segment.

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 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.

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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 consumer products.

Our Digital Instructor subsidiary’s ability to compete and operate successfully depends in part on our acquiring and controlling proprietary intellectual property. Our consumer products 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 products that we plan to market, we will market fewer products 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 and RezActiv 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 consumer products. If we cannot successfully defend against claims that our products or product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

•  decreased demand for our products or any products that we may develop;

•  injury to our reputation;

•  the withdrawal of a product from the market;

•  costs to defend the related litigation;

•  diversion of management time and attention;

•  loss of revenue; and

•  inability to commercialize the products that we may develop.

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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 began on January 12, 2009.  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.

We rely on contract manufacturers to produce all of the EasyWhite Labs, Acai Alive and RezActiv 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 and RezActiv 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, 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 42 employees as of March 15, 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 for our products and services.

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

· sales to merchant advertisers of performance-based and other advertising; and

· services that allow merchants to manage their advertising campaigns across multiple networks and monitor the success of these campaigns.

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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.

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”).  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.

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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.

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.

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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.

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.

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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.

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.

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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.

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 of our 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;

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·    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.

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.

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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 which was treated as a dividend, 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.

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.

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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 the Membership Interests of Digital Instructor, LLC, under the six month share reset provision, we determined the VWAP was $1.47 and accordingly, 420,039 additional shares of common stock were issued to the former members of Digital Instructor, LLC on February 12, 2009. In connection with this issuance, the Company has relied on the exemption from registration under the Securities Act of 1933 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 of 1933 or an exemption therefrom.

In connection with the Company’s termination of an employee who was granted 50,000 restricted shares of common stock under the Plan on September 23, 2008, the Company accelerated the vesting of 10,000 restricted shares of common stock and cancelled the remaining 40,000 restricted shares of common stock with respect to such employee on February 10, 2009.  In connection with this issuance, the Company has relied on the exemption from registration under the Securities Act of 1933 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 of 1933 or an exempt therefrom.

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

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Item 6.  Exhibits

Exhibit No.	Description
3.1	Certificate of Incorporation (1)
3.2	Bylaws (1)
10.1	Agreement, dated as of March 6, 2009, by and among Adex Media, Inc., Digital Equity Partners, LLC, and the former member of Digital Instructor, LLC (2)
10.2	Senior Secured Promissory Note, dated as of March 6, 2009, by and among AdEx Media, Inc., and Digital Equity Partners, LLC (2)
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*

(1) The Certificate of Incorporation is incorporated by reference herein to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2008, and a Correction to Certificate of Incorporation is 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 March 12, 2009.
*	filed herewith.

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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: MAY 15, 2009	By:	/s/ Scott Rewick
		Scott Rewick
		Chief Executive Officer
	ADEX MEDIA, INC.
Date: MAY 15, 2009	By:	/s/ Ben Zadik
		Ben Zadik
		Chief Financial Officer

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