Adex Media (ADXM) 10-Q 2009 Q2 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 June 30, 2009

OR

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

For the Transition Period From ___________   to  _____________

Commission File Number: 000-53733

ADEX MEDIA, INC.

(Exact name of registrant as specified in its charter)

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

(650) 967-3040

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ¨    No  ¨

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

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

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

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

EXPLANATORY NOTE

The Company filed a Registration Statement on Form 8-A with the Securities and Exchange Commission on July 20, 2009 (“Registration Statement”). As a result, the Company became subject to the reporting requirements under the Securities Exchange Act of 1934 on July 20, 2009.  Prior to the filing of the Registration Statement, the Company was a voluntary filer that had filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it was a “subject” to such requirement.  Accordingly, the Company has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months but has not been subject to such filing requirements for the past 90 days.

ADEX MEDIA, INC.

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

TABLE OF CONTENTS

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

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PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

ADEX MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	2,567,287		$	683,576
Restricted cash		100,000			-
Short-term investments		569,280			2,502,670
Accounts receivable, net of allowance for doubtful accounts of $90,430 and $19,737		1,179,546			521,004
Credit card processor holdbacks, net of reserves of $595,640 and $167,363		604,771			300,493
Inventory		231,892			57,087
Prepaid expenses and other current assets		340,863			97,878
Total current assets		5,593,639			4,162,708
Property and equipment, net		114,758			43,606
Intangible assets, net		232,222			1,367,330
Goodwill		8,448,789			8,448,789
Total assets	$	14,389,408		$	14,022,433
LIABILITITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,027,999		$	929,807
Accrued liabilities		1,171,007			593,907
Warrant  liability		186,353			-
Deferred revenue		119,641			25,709
Promissory notes		253,778			401,806
Total current liabilities		3,758,778			1,951,229
Promissory notes		-			150,000
Deferred tax liability		5,053			404,817
Total liabilities		3,763,831			2,506,046
Commitments and Contingencies (Note 15)
Stockholders' Equity:
Preferred stock; $0.0001 par value; 10,000,000 shares authorized;		195			-
1,951,337 shares issued and outstanding at June 30, 2009 for
series A preferred stock and zero at December 31, 2008
Common stock, $0.0001 par value; 150,000,000 shares authorized, 31,756,245		3,166			3,120
and 31,202,347 shares issued and outstanding at June 30, 2009 and
December 31, 2008, respectively
Additional paid-in capital		17,282,774			13,808,966
Accumulated deficit		(6,660,558	)		(2,295,699	)
Total stockholders' equity		10,625,577			11,516,387
Total liabilities and stockholders' equity	$	14,389,408		$	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						For The Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2009			2008			2009			2008
Revenues:
Marketing platform services - external offers	$	2,825,000		$	718,776		$	5,337,500		$	1,409,329
Marketing platform services - internal offers		5,334,289			-			6,315,685			-
Total revenues		8,159,289			718,776			11,653,185			1,409,329
Cost of revenues:
Marketing platform services - external offers		2,216,407			536,244			4,320,300			1,079,904
Marketing platform services - internal offers		1,506,669			-			1,907,325			-
Amortization of acquired product licenses		23,333			-			58,333			-
Total cost of revenues		3,746,409			536,244			6,285,958			1,079,904
Gross profit		4,412,880			182,532			5,367,227			329,425
Operating expenses:
Product development		-			35,250			-			35,250
Sales and marketing		4,726,346			295,982			6,712,082			328,473
General and administrative		697,400			542,713			1,376,537			551,208
Amortization of intangible assets		39,892			-			86,941			-
Impairment charges on intangible assets		989,834			-			989,834			-
Total operating expenses		6,453,472			873,945			9,165,394			914,931
Operating loss		(2,040,592	)		(691,413	)		(3,798,167	)		(585,506	)
Other income and expense:
Interest and other (expense) income, net		(14,576	)		29,536			432			32,093
Mark-to-market loss on warrant liability		(18,538	)		-			(18,538	)		-
Loss before (benefit) provision for income taxes		(2,073,706	)		(661,877	)		(3,816,273	)		(553,413	)
(Benefit) provision for income tax		(381,278	)		-			(399,764	)		800
Net loss	$	(1,692,428	)	$	(661,877	)	$	(3,416,509	)	$	(554,213	)
Deemed dividend to series A preferred stockholders		(948,350	)		-			(948,350	)		-
Net loss attributable to common stockholders	$	(2,640,778	)	$	(661,877	)	$	(4,364,859	)	$	(554,213	)
Loss per common share, basic and diluted	$	(0.08	)	$	(0.04	)	$	(0.14	)	$	(0.07	)
Weighted average common shares used in computing
basic and diluted loss per common share		31,640,212			15,212,600			31,534,267			7,689,967

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

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ADEX MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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

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ADEX MEDIA, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1.        ORGANIZATION AND BASIS OF PRESENTATION

Description of Business  

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

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

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

Basis of Presentation and Use of Management Estimates

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

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

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

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

NOTE 2.        SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

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

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

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

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

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

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

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

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

Classification of Affiliates Cost

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

NOTE 3.        RESTRICTED CASH

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

NOTE 4.        FAIR VALUE MEASUREMENT

The fair-value hierarchy established by the Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“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.

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

	Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Assets
Short-term investments	$	569,280	$	-	$	-	$	569,280
Liabilities
Warrant liability	$	-	$	-	$	186,353	$	186,353

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

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

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

NOTE 5.        CREDIT CARD PROCESSOR HOLDBACKS

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

NOTE 6.        INVENTORY

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

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NOTE 7.        PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE 8.        PROPERTY AND EQUIPMENT, NET

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

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

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

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

NOTE 9.        ACQUISITIONS

Acquisition of the Assets of Vibrantads, LLC

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

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

	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.

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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

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

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

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

Acquisition of Digital Instructor, LLC

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

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

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

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

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

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

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

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

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

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

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

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

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

	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.

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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

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

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

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

Acquisition of Bay Harbor Marketing, LLC

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

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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 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.

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

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

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

Consolidated Pro Forma

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

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

NOTE 10.      GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

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

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

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Intangible Assets

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

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

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

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

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

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

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

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

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

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

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

	Amortization Expense
	(by fiscal year)
Remainder of 2009	$	51,168
2010		74,075
2011		41,111
2012		40,000
2013		25,868
Total	$	232,222

NOTE 11.      ACCRUED LIABILITIES

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

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

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NOTE 12.     PROMISSORY NOTES

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

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

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

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

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

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

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

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

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

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

NOTE 13.      EARNING (LOSS) PER SHARE

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

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

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

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

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

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

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

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

NOTE 14.      COMPREHENSIVE (LOSS) INCOME

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

NOTE 15.      COMMITMENT AND CONTINGENCIES

Lease Commitments

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

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

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

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

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

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

Years	Amount
Remainder of 2009	$	76,546
2010		80,967
2011		83,838
2012		42,603
Total	$	283,954

Contingencies

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

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NOTE 16.      CONVERTIBLE PREFERRED STOCKS AND WARRANTS

Terms and Conditions

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

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

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

Valuation of Convertible Preferred Stocks, Warrants and Embedded Conversion Feature

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

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

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

Stock price:                            $1.60

Exercise price:                        $1.56

Risk free interest rate:           2.81%

Volatility:                                100%

Expected term:                        2.5 years

Dividends:                              none

20

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

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

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

Marking-to-Market

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

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

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

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

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

21

Stock Options

Option activity under the Plan was as follows for the six months ended June 30, 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
Forfeited or expired		(54,687	)		0.75		-		-
Outstanding at June 30, 2009		4,625,313		$	1.63		8.92	$	3,868,510
Vested and exercisable at June 30, 2009		1,019,688		$	0.75		8.64	$	1,171,366

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

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

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

Restricted Stock

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

We accounted for non-employee shares of restricted stocks in accordance with EITF Abstract No. 96-18, 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 June 30, 2009.

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

Warrants

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

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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 June 30, 2009		75,000	$	2.50		4.51	$	-
Exercisable at June 30, 2009		32,837	$	2.64		4.51	$	-

Share-based Compensation Expenses

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

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

NOTE 18.    SEGMENTS, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

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

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

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

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

1.Marketing Platform Services – Internal Offers

2.Marketing Platform Services – External Offers

Marketing Platform Services – Internal Offers

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

(i)   search and contextual based advertising;

(ii)   display based advertising; and

(iii)   affiliate marketing.

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

Marketing Platform Services – External Offers

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

(i)search and contextual based advertising;

(ii)display based advertising; and

(iii)affiliate marketing.

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

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

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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:

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

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

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

Customer Base

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

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

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

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

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

Vendor Base

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

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

Operations by Geographic Area

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

Location of Assets

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

NOTE 19.      INCOME TAXES

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

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

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

NOTE 20.      RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

NOTE 21.      SUBSEQUENT EVENT  

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

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

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

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

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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 information contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 is not a complete description of the Company’s business or the risks associated with an investment in the Company’s securities. Each reader should carefully review and consider the various disclosures made by the Company in this Quarterly Report on Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission.

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

COMPANY OVERVIEW 

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

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

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

BUSINESS SEGMENTS

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

28

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

1.Marketing Platform Services – Internal Offers

2.Marketing Platform Services – External Offers

Marketing Platform Services – Internal Offers

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

(i)   search and contextual based advertising;

(ii)   display based advertising; and

(iii)   affiliate marketing.

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

Marketing Platform Services – External Offers

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

(i)   search and contextual based advertising;

(ii)   display based advertising; and

(iii)   affiliate marketing.

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

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

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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:

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

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

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

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

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

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

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SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

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

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

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

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

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

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

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

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

Classification of Affiliates Cost

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

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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 condensed consolidated financial statements and notes thereto contained in Item 1 of this report. The following table sets forth certain consolidated statements of operations data as a percentage of net revenues for the periods indicated.

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

Revenues

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

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

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

Cost of Revenues

Marketing Platform Services – External Offers

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

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

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

Marketing Platform Services –Internal Offers

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

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

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

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Gross profit

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

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

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

Operating expenses

Sales and marketing expenses

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

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

General and administrative expenses

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

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

GOODWILL

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

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

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INTANGIBLE ASSETS

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

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

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

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

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

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

	Amortization Expense
	(by fiscal year)
Remainder of 2009	$	51,168
2010		74,075
2011		41,111
2012		40,000
2013		25,868
Total	$	232,222

CONVERTIBLE PREFERRED STOCKS AND WARRANTS

Terms and Conditions

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

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

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

Valuation of Convertible Preferred Stocks, Warrants and Embedded Conversion Feature

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

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

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

Stock price:                           $1.60

Exercise price:                       $1.56

Risk free interest rate:          2.81%

Volatility:                               100%

Expected term:                       2.5 years

Dividends:                             none

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

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

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

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Marking-to-Market

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

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

Interest and other income (expense), net

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

·   Interest income;

·   Interest expense;

·   Foreign exchange gains or losses; and

·   Finance charges;

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

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

(Benefit) Provision for income tax

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

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

·   allowance for chargebacks of $428,277; and

·   bad debt expense of $70,693.

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements

Please refer to “Part I, Item 1. Financial Statements” and “Notes to Unaudited Condensed Consolidated Financial Statements, Note 20 – 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 June 30, 2009.

Item 3.           Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4T. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

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

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

(b) Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A. Risk Factors

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

Risks Relating to the Company

Our limited operating history makes evaluation of our business difficult.

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

Deterioration of economic conditions could harm our business.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

· we could experience a substantial strain on our resources, including time and money, and we may not be  successful in completing the acquisitions;

· our management’s attention may be diverted from our ongoing business concerns;

· while integrating new companies, we may lose key executives or other employees;

· we could experience customer dissatisfaction or performance problems with an acquired company or technology;

· we may become subject to unknown or underestimated liabilities of an acquired entity; or incur unexpected expenses or losses from such acquisitions; and

· We may incur impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our business.

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

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

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

We may be unable to attract and retain key employees.

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

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

We may be unable to effectively manage our growth.

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

·    meet our capital needs;

·    expand our systems effectively or efficiently or in a timely manner;

·    allocate our human resources optimally;

·    identify and hire qualified employees or retain valued employees; or

·    incorporate effectively the components of any business that we may acquire in our effort to achieve growth.

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

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

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

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

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

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

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

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

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Risks Relating to Our Business

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• injury to our reputation;

• the withdrawal of a product offer from the market;

• costs to defend the related litigation;

• diversion of management time and attention;

• loss of revenue; and

• inability to commercialize the product offers that we may develop.

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

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

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

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

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

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

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

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

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

Risks Relating to Our Industry

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

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

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

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

· sales to consumers of free trial continuity product offers.

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

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

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

·    longer operating histories;

·    more management experience;

·    an employee base with more extensive experience;

· a better ability to service customers in multiple cities in the United States and internationally by virtue of the location of sales offices;

·    larger customer bases;

·    greater brand recognition; and

·    significantly greater financial, marketing and other resources.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

·    possible disruptions or other damage to the Internet or telecommunications infrastructure;

·    failure of the individual networking infrastructures of our merchant advertisers and distribution partners to alleviate potential overloading and delayed response times;

·    a decision by merchant advertisers to spend more of their marketing dollars in offline areas;

·    increased governmental regulation and taxation; and

·    actual or perceived lack of security or privacy protection.

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

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

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

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

· the Digital Millennium Copyright Act and its related safe harbors, which are intended to reduce the liability of online service providers for listing or linking to third-party Web sites that include materials that infringe copyrights or other rights of others;

· the Federal Trade Commission Act, which requires, among other things, that all disclosures in connection with online offers and promotions be “clear and conspicuous”;

· the CAN-SPAM Act of 2003 and certain similar state laws, which are intended to regulate interstate commerce by imposing limitations and penalties on the transmission of unsolicited commercial electronic mail via the Internet; and

· pending and adopted consumer protection and privacy legislation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

·  Internet advertising networks that focus on a CPA model, such as Value Click Media and CPX Interactive;

· Internet affiliate networks using a performance-based model, such as Media Breakaway/CPA Empire, Hydra Media and Media Whiz Holdings;

· e-mail publishers and Data/List Management firms that use performance based models such as Datran;

· Internet navigational and Web search engine companies moving into the pay-for-performance space such as Google; and

· traditional advertising and direct marketing media, such as radio, cable, television, print and direct marketing.

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

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Risks Relating to the Common Stock

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

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

·    announcements of new products or services by our competitors;

·    fluctuations in revenue attributable to changes in the search engine-based algorithms that  rank the relevance ofour content;

·    quarterly variations in our revenues and operating expenses;

·    announcements of technological innovations or new products or services by us;

·    sales of common stock by our founders and directors or other selling stockholders;

·    competitive pricing pressures;

·    our ability to obtain working capital financing;

·    additions or departures of key personnel;

·    the limited number of people who hold our common stock;

·    sales of large blocks of our common stock when restricted shares become freely tradable;

·    our ability to execute our business plan;

·    operating results that fall below expectations;

·    loss of any strategic relationship;

·    regulatory developments;

·    period-to-period fluctuations in our financial results;

·    the potential absence of securities-analyst coverage;

·    conditions or trends in the industry; and

·    general market conditions.

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

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

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

Our common stock is controlled by insiders.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

·    to elect or defeat the election of our directors;

·    to amend or prevent amendment of our Certificate of Incorporation or By-laws;

·    to effect or prevent a merger, sale of assets or other corporate transaction; and

·    to control the outcome of any other matter submitted to our stockholders for vote.

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

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

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

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

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

Item 3. Defaults Upon Senior Securities

None

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

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

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

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

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

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

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

Item 5. Other Information

None

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Item 6.  Exhibits

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

______________

* Filed herewith 

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

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SIGNATURES

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

	ADEX MEDIA, INC.
Date: August 14, 2009	By:	/s/ Scott Rewick
		Scott Rewick
		Chief Executive Officer
		(Principal Executive Officer)
	ADEX MEDIA, INC.
Date: August 14, 2009	By:	/s/ Ben Zadik
		Ben Zadik
		Chief Financial Officer
		(Principal Financial and Accounting Officer)